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Thursday, January 26, 2017

Stocks Finish Mixed, Dow Holds 20,000

Charles Schwab: On the Market

Posted: 1/26/2017 4:15 PM ET

Stocks Finish Mixed, Dow Holds 20,000

U.S. stocks were able to hold most of their recently acquired gains,
finishing the regular trading session mixed but near the flatline as the
major domestic indexes are on track for their best week of the New
Year. The Street digested a flood of earnings and economic data, while
investors seem to be optimistically cautious in regard to the new
administration's possible fiscal policy plans. Treasuries, crude oil
prices and the U.S. dollar were higher and gold declined.

The Dow Jones Industrial Average (DJIA) rose 32 points (0.2%) to 20,101,
the S&P 500 Index was nearly 2 points (0.1%) lower at 2,297 and the
Nasdaq Composite shed 1 point to 5,655. In moderate volume, 829 million
shares were traded on the NYSE and 1.9 billion shares changed hands on
the Nasdaq. WTI crude oil increased $1.03 to $53.78 per barrel and
wholesale gasoline gained $0.02 to $1.57 per gallon. Elsewhere, the
Bloomberg gold spot price fell $11.64 to $1,189.04 per ounce, and the
Dollar Index—a comparison of the U.S. dollar to six major world
currencies—ticked 0.5% higher to 100.50.

Dow member Caterpillar Inc.
(CAT $97) reported 4Q earnings-per-share (EPS) ex-items of $0.83, above
the $0.66 FactSet estimate, as revenues fell 13.2% year-over-year (y/y)
to $9.6 billion, versus the projected $9.8 billion. The mining and
construction equipment maker said although its adjusted profit was
better than expected, it continued to reflect pressure in many of its
markets from weak economic conditions around much of the world. CAT
issued 2017 EPS guidance that was below expectations, though its revenue
forecast was roughly in line with forecasts and the company noted that
it is seeing positive signs that could be early indications of modest
recovery in several of its businesses, and it may being seeing a bottom
in mining-related sales. Shares finished lower.

Comcast Corp.
(CMCSA $76) reported 4Q EPS of $0.89, two cents north of estimates,
with revenues rising 9.2% y/y to $21.0 billion, above the expected $20.7
billion. Separately, the company announced a 2-for-1 stock split, a
15.0% increase of its dividend and a boost of its share repurchase
program to $12.0 billion. CMCSA traded nicely higher

eBay Inc.
(EBAY $32) posted 4Q profits ex-items of $0.54 per share, one penny
above estimates, as revenues rose 3.0% y/y to $2.4 billion, roughly in
line with forecasts. The company's 1Q guidance came in a bit shy of
forecasts, while its 2017 guidance was mixed. However, shares were
higher as analysts expressed some optimism regarding its 2017 guidance
for gross merchandise volume—a measure of total value of merchandise
sold—as it suggested a potential build in momentum on the back half of
the year.

Services sector activity accelerates more than expected, new home sales fall

The preliminary Markit U.S. Services PMI Index for January rose
to 55.1 from December's reading of 53.9, versus the Bloomberg forecast
of an improvement to 54.4, with a reading above 50 indicating expansion.
Markit said business activity and new work accelerated and input cost
inflation slowed, while the business outlook reported by services firms
was the strongest in nearly two years. The release is independent and
differs from the Institute for Supply Management's (ISM) report, as it has less historic value and its index components are weighted differently.

New home sales (chart)
fell 10.4% month-over-month (m/m) in December to an annual rate of
536,000, well below forecasts of 588,000 units. The median home price
rose 7.9% y/y to $322,500. The supply of new home inventory rose m/m to
5.8 months at the current sales pace. Sales jumped m/m in the Northeast,
but fell in the Midwest, South and West. New home sales are based on
contract signings instead of closings, so this is one of the first looks
at housing activity since the recent rally in mortgage rates.

The Conference Board's Index of Leading Economic Indicators (LEI) (chart)
was up 0.5% m/m in December, matching projections, after November's
upwardly revised 0.1% gain. Support came from the components pertaining
to the yield curve, stock prices, consumer expectations and ISM new
orders, while the index was bogged down by jobless claims.

Weekly initial jobless claims (chart)
rose 22,000 to 259,000 last week, above forecasts of 247,000, with the
prior week’s figure revised to 237,000 from 234,000. The four-week
moving average declined by 2,000 to 245,500, while continuing claims
gained 41,000 to 2,100,000, north of estimates of 2,040,000.

The Kansas City Fed Manufacturing Activity Index for January
remained at December's downwardly revised 9 reading, versus forecasts of
a dip to 8, though a level north of zero depicts expansion.

The advance goods trade deficit shrunk modestly to $65.0 billion in December, from the unrevised $65.3 billion in November, where it was expected to remain.

Tomorrow, the economic calendar will culminate with the releases of the first look (of three) at 4Q GDP,
projected to show output slowed to a 2.2% quarter-over-over annualized
pace of growth, from 3.5% in 3Q, as well as preliminary December durable goods orders,
with growth forecasted to rebound to 2.6% m/m from November's 4.5%
drop. Stripping out the more volatile components of transportation and
defense, durable goods orders are projected to rise for the
third-consecutive month to close out 4Q. Finally, we will get the final University of Michigan Consumer Sentiment Index,
which is expected to be unrevised at 98.1, down slightly from
December's 98.2, which was the highest since January 2004. For analysis
of the outlook for consumer and business sentiment following their
recent jumps, see Schwab’s Chief Investment Strategist Liz Ann Sonders'
latest article, Not Fade Away: Will High Consumer/Business Confidence Fade or Persist?, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Treasuries were mildly higher, with the yields on the 2-year and 10-year
notes, as well as the 30-year bond ticking 1 basis point lower to
1.22%, 2.50%, and 3.08% respectively.

European equities finished mixed, on the heels of the previous two
sessions of gains, that have been fostered by the global markets
appearing to grow more optimistic following the plethora of executive
orders from U.S. President Donald Trump. Optimism seems to be centered
on whether Trump's campaign promises of boosted infrastructure spending
and reduced taxes and regulations could come to fruition, though
concerns remain about his actions to change global trade relations. The
euro and British pound lost ground on the U.S. dollar, while bond yields
in the region were mostly higher. Healthcare issues got a boost from a
rally in shares of Actelion Ltd. (ALIOY $68) after Dow member Johnson & Johnson
(JNJ $112) announced an agreement to acquire the Swiss biotech company
for about $30.0 billion. Earnings in the region were mostly positive,
while U.K. 4Q GDP growth came in stronger-than-expected.

Stocks in Asia finished higher on the heels of the continued rally in
the U.S., with the Dow breaching the 20,000 mark. The global markets
have been eyeing a plethora of executive orders from U.S. President
Trump, appearing optimistic regarding his plans to boost infrastructure
spending and reduce regulations and taxes, while shrugging off his
actions to change global trade relations. For more on Trump's trade
policies, see Schwab's Chief Global Investment Strategist Jeffrey
Kleintop's, CFA, article, President Trump and Global Trade: How Will Campaign Promises Play Out? at www.schwab.com/oninternational, where you can also find Schwab's Director of International Research, Michelle Gibley's, CFA, latest article, Currency Hedging: 5 Things You Need to Know.

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